a16z State of Markets II: AI Drives the Shift From Bits to Atoms

Summary

a16z has released the second edition of State of Markets, a presentation with more than 100 charts covering equity markets and technology during the first half of 2026. It argues that technology has become the central earnings-growth force in markets, contributing about 76% of S&P 500 earnings growth in 2026 as of late August. Within technology, investment is shifting from “bits to atoms”: AI demand is supporting semiconductors, power, networking, compute, memory, robotics, manufacturing, and other capital-intensive infrastructure, financed by both hyperscaler cash flow and rising debt. The report says compute demand still exceeds supply, so older GPUs such as Nvidia’s A100 have retained or increased rental rates and residual value rather than becoming obsolete after three to four years. It attributes this to falling intelligence costs encouraging more demand for compute, while arguing that newer models and chips have so far expanded value across the ecosystem instead of making older assets worthless. Adoption remains early: nearly 30% of S&P 500 companies report some quantifiable AI impact, but only about 2% report a tracked metric, and roughly 2% of US households were paying for an AI service as of April. The report also rejects a broad “SaaSpocalypse,” saying public software was repriced partly because only about 30% of companies still grow above 20%, although roughly 75% are profitable. Looking ahead, a16z expects AI adoption to deepen and expand into robotics, biotech, health, and autonomous driving, while cautioning that the pace of change makes this cycle unlike previous technology cycles.